Tuesday, August 28, 2018

Today's Economic Data Dump: Anything But Dumpy!

All we can say about today's economic data releases is that anyone who would suggest that the presently flattening yield curve points to severe risk of near-term recession is really -- for whatever unsupported-by-the-evidence reason(s) -- aching for a recession.

Here's our summary:U.S. trade (in goods) deficit came in on the high-end of expectations, at -$72 billion. Yes, that speaks positively about the present strength of the U.S. consumer. Not to mention, it supplies the world with $72 billion U.S. dollars that'll come back in the form of U.S. treasury purchases (my how this Administration needs them), and capital investment!Retail Inventoriesup 0.4%.

Econoday comments:

Given that inventories were very lean going into the quarter, today's news is not only positive for GDP but also for production and employment as businesses, meeting strong demand, restock warehouses and shelves.

Wholesale Inventories up 0.7%.

Econoday comments:

Wholesale inventories spiked 0.7 percent in July and were led solidly by a 0.9 percent rise in durable goods. This result together with a 0.4 percent build in retail inventories (also released this morning) point to a very fast start for third-quarter inventories which were very negative in the second quarter, pulling down the quarter's growth by 1.0 percentage point. Given that inventories were very lean going into the quarter, today's news is not only positive for GDP but also for production and employment as businesses, meeting strong demand, restock warehouses and shelves.

Home prices
as captured by
the Case-Shiller
home price indices
for existing
homes have
slowed somewhat
but are still
rising at a robust
low-6% YoY
range nationally. The national,
10-city, and 20-
city aggregates
are all above
their 2007 peak. Given relatively modest mortgage debt levels and solid income growth, to say nothing of rising
home ownership rates, the outlook is bright. Still-low uptake of new homes relative to existing home sales, to say nothing of larger demographic
tailwinds are other reasons to expect any moderation in home prices to be temporary.

Consumer Confidence: 133.4. That's a huge beat! The high range of estimates topped out at 128!

Econoday comments:

This is the strongest result since the dotcom fever of October 2000. July is revised 5 tenths higher to 127.9.

The most important detail in the August report is a notable decline in those saying jobs are currently hard to get which is down very steeply from an already thin 14.8 percent to 12.7 percent. This is extremely favorable for this reading and is certain to raise expectations for a very healthy monthly employment report for August.

A second detail that speaks to impressive strength is the outlook on income. Optimists here rose a very sharp 5.1 percentage points to 25.5 percent with pessimists shrinking 2.4 points to 7.0 percent. The gain here not only reflects the strength of the labor market but also the strength of the stock market.

Boosted by jobs hard to get, the present situation index rose from 166.1 to 172.2 while the expectations index, boosted by income prospects, increased from 102.4 last month to 107.6 this month.

Another positive in the report, at least for Federal Reserve policy makers who are concerned that inflation doesn't overshoot their target, is a 2 tenths dip in year-ahead inflation expectations to 4.8 percent which for this reading is nevertheless elevated.

Bulls are dominating stock market sentiment, at 39.4 percent for a 2.2 point gain from July with bears at 24.5 percent and down 4.1 points. Most see interest rates moving higher, at 69.4 percent vs 71.4 percent in July.

Buying plans are yet another major positive showing strong gains across the board: autos, homes, and major appliances. This report points to a noticeable upward revision in Friday's consumer sentiment report and more importantly hints at building consumer momentum for third-quarter GDP.

Manufacturing activity in the Fifth District expanded strongly in August, with the Richmond Fed Manufacturing Index rising 4 points to 24. Exceeding the consensus forecast as well as the range of analysts' expectations, the strong August growth was broad-based, buoyed by increases in shipments, up 7 points to 23, new orders, which rose 3 points 25, and employment, where the number of employees was up 3 points to 22.

Now, all that good news aside, our analysis of present conditions -- while still pointing to continued expansion and rising corporate profits -- is that they ain't what they were at the beginning of the year. As our PWA [Macro] Index -- 84 key economic & financial market data points -- which scored a 2018 high of 81.3 on January 15, came in at a still respectable (but a far cry from 81.3) 45.2 this week (above zero denotes near-term odds favoring continued expansion over recession).